Employment Law Bulletin 11

Third Party Pressure

This bulletin examines what employers should be doing if they are facing significant pressure from a third party to dismiss one of their employees.  This pressure could come from a valuable customer or from another third party who wields significant influence over the employer.  

The Employment Right Act 1996 (ERA) sets out the law in relation to unfair dismissal, with employers who dismiss employees (generally those with over two years’ service) being required to demonstrate a fair reason for doing so.  Fair reasons set out in the ERA are redundancy, conduct, capability, illegality, and some other substantial reason.

Case law has established that third party pressure can potentially amount to a fair reason for termination, falling under the category of ‘some other substantial reason’.   However, employers will still be required to act appropriately in the circumstances to avoid finding themselves in the employment tribunal.

Stuck between a rock and a hard place

An employer may be receiving pressure from a third party to take action against their employee, sometimes against their own better judgment.  This gives the employer a difficult choice to make; do they risk upsetting a major client and potentially causing commercial damage to their business; or do they risk severely damaging the employment relationship and potentially facing claims in the Employment Tribunal?

By way of illustration, imagine the example of a security firm who provide security guards for a large chain of supermarkets, with that client making up 80% of the firm’s turnover.  If the supermarket then reports dissatisfaction with the way that a particular security guard has behaved, and insist on him being dismissed, the security firm will face a dilemma between protection of their commercial interests and the employment rights of their employee.

Can a dismissal due to third party pressure ever be fair?

In short, yes.   A case called Scott Packing & Warehousing Co. Ltd v Paterson from 1978 set out that where a customer or supplier requires an employee’s dismissal, that dismissal can potentially be fair for ‘some other substantial reason’.

Interestingly, an employer in dismissing an employee for this reason does not have to establish the truth of any allegations that have been made against the employee, or necessarily agree with the request to dismiss in order to rely on third-party pressure as a valid reason for dismissal.

How much pressure is needed?

Generally, an employment tribunal will accept customer pressure as the reason for dismissal if the evidence suggests that an ultimatum was served on the employer.  This can be the case even without a direct instruction to dismiss being made if the pressure being exerted has the same effect. 

However, there does need to be some evidence of pressure being applied rather than a perceived pressure from the customer/supplier.  As such, the employer is unlikely to be able to rely on the decision of a third party as a reason for dismissal if there has been no pressure applied. 

Improper pressure?

Whilst pressure can amount to a fair reason, it should be noted that ‘improper’ pressure applied by a third party may result in the employer being unable to demonstrate a fair reason for dismissal. 

In the case of Lavelle v Alloa Brewery Co Ltd, the police suggested to a pub that their license would be at risk if they did not dismiss the employee.  This was held not to amount to a fair reason for the employer to dismiss the employee.  This said, there have been a number of contrasting cases on this point and the tribunals would look carefully as to whether the pressure would be deemed ‘improper’.

Reasonableness of dismissal

As with all unfair dismissal cases, section 98(4) of the ERA introduces a test of ‘reasonableness’, where the employment tribunal will have to determine whether the employer acted reasonably in treating the reason as sufficient to dismiss the employee.

Employers will therefore need to show more than just some pressure being applied by a third party; they must also show they have acted reasonably when deciding to dismiss their employee because of this pressure. 

Ultimately, the reason that the third party is applying the pressure is not of particular importance here, although in practice it is often cited by the third party as being due to poor performance, poor conduct or a breakdown in relationships.  Of more importance for an employment tribunal to determine is the seriousness of the threat that was being made to the employer by the third party and how important that third party is to the employer.

In our security firm illustration above, if the supermarket chain had made credible threats regarding terminating its arrangements with the security firm if the employee was not dismissed, dismissal is more likely to be considered reasonable behaviour on the part of the employer.  However, if the third party was the owner of a single shop representing 1% of turnover, who mentioned that they may consider withdrawing their business unless a dismissal occurs, this is less likely to be deemed reasonable.

Potential injustice to the employee

In helping to establish reasonableness, the employer should also consider the extent of any injustice that would occur to the employee from being dismissed.  The wording of the contract of employment may be relevant here and may give the employer some room for flexibility. 

If the employer considers that an injustice would be caused, they must also consider any steps they could take to avoid that injustice such as any alternative roles that the employee could be redeployed to within the firm.

Importantly, when assessing reasonableness, an employment tribunal will also look at any efforts the employer has taken to persuade the third party to change its mind.  If attempts have been made to persuade, it is more likely to be considered reasonable behaviour on the part of the employer.  However, insufficient efforts made in this regard may leave the employer open to a claim for unfair dismissal.

What should you do if you are receiving pressure from a third party to dismiss your employee?

Before taking any action, it would be advisable to seek urgent legal advice to establish whether dismissal of the employee is likely to result in any legal claims being raised against you.  This will help to i) minimise any risk you face, and ii) determine the most appropriate commercial decision for your business.

If you require legal assistance with an Employment Law matter, we offer complimentary initial video/telephone consultations with one of our legal experts.  Call us today on 0800 999 4437 or email enquiries@parfittcresswell.com to speak to a member of our team.